Oil jumps to highest since 2014 after USA quits Iran deal

Oil jumps to highest since 2014 after USA quits Iran deal

Trump said on 8 May that the US will withdraw from the Joint Comprehensive Plan of Action (JCPOA), better known as the Iran nuclear agreement, reached in 2015 between the six world powers - the US, UK, France, Germany, Russia, China - and Iran.

For Iran's clients, what happens this time will likely echo the last episode earlier this decade, when Iran was also sanctioned by the U.S. Back then countries were given exemptions by the U.S. - reviewed every 180 days - if they "significantly" reduced imports from the Islamic Republic.

Iranian oil accounted for 13 percent of the country's total crude imports past year, coming in third place after Saudi Arabia and Kuwait.

Analysts now expect Iran's supplies to fall by 300,000 bpd to 1 million bpd, depending on how many other countries fall in line with Washington.

Trump's decision came as no surprise as he has always been against the Iran deal.

Wall Street cut losses to end little changed on Tuesday while energy stocks rallied after U.S. President Donald Trump said the United States would quit the Iran nuclear deal, confirming what many investors had expected.

China's response to the US sanctions is unclear.

Japan's Foreign Minister Taro Kono said on Wednesday that his country supported the agreement, which "helps to strengthen global non-proliferation and the stability in the Middle East".

The Treasury Department issued guidance on how the sanctions will be reimposed.

Speaking earlier to CNN, he said that any factor that prevented the smooth running of the oil industry "will not be in the interest of the global economy" in reference to a USA exit from the Iranian nuclear deal.

Still, early indications show importers of Iranian crude now waiting for more clarity on the U.S. sanctions are not inclined to react immediately.

The biggest single buyer of Iran's crude is China, whose imports peaked at about 900,000 bpd in mid-2016 but have dropped to around 600,000 bpd in 2018, according to Thomson Reuters ship-tracking data. "The President's hawkish language has the potential to aggravate tensions in the Middle East further, potentially putting additional upward pressure on crude oil prices", the Japanese firm said.

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USA light crude was up $1.90 a barrel, or nearly 2.8 percent, at $70.96, near highs also last seen in late 2014.

And Chinese refiners say there are alternative suppliers, including Russia, Saudi Arabia and exporters in West Africa.

"The oil supply/demand balance is roughly in balance now, but it could turn to a complete supply shortage (in case of new supply curbs)".

In India, another major buyer of Iranian oil, refiners hope they can continue importing Iranian oil.

Trump also reinstated U.S. sanctions which could curtail Iran's ability to export oil, its mainstay for public revenues.

Political news kept stocks from trading higher on Tuesday.

When sanctions were loosened against Tehran in 2016, India ramped up imports from Iran to nearly 900,000 bpd in late 2016, but intake has fallen back to around 500,000 bpd since the start of the year.

Kloza says the biggest reason prices are up now is that supply and demand are tightening.

As a result, crude oil inventories in major developed nations have fallen sharply in the last year and a half to 2.85 billion barrels, only slightly above their five-year average.

"I think we're going to $80", said Eric Nuttall, senior portfolio manager at Ninepoint Partners in Toronto, referring to the benchmark crude oil price.

Saudi Arabia said it would work with other producers to lessen the impact of any shortage in oil supplies.

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